Do you feel it is time you bought your own home? You will almost certainly need a loan to achieve that. A strong credit score will give lenders confidence in loaning you the required amount. We talked to Lisa Salt from the Salt Fowler Real Estate Team in Vernon, BC. She had some excellent recommendations on credit and buying a home. These are her suggestions.
If you are wondering if it is possible to improve your credit score, we have good news. There are steps you can take to better your credit score and increase your creditworthiness in the future. If you are wondering why a credit score is so important when applying for a mortgage to buy a house, keep reading.
When you approach lenders for a mortgage your credit score is important in determining the amount of mortgage you qualify for. And the higher your credit score, the better interest rate you will get. You may also be required to pay a lower down payment. Banks and other mainstream lenders will not loan to anyone without a proven history of repaying their loans on time. The credit score provides a summary of this information.
How Can You Improve Your Credit Score?
To get a good credit score you will need to start building your credit history. There are ways to increase your credit score but they take time. Many factors affect your credit score. They include your credit card use, credit age, payment history, derogatory marks, number of accounts, and number of inquiries. This means that you have to work on all of these to get a progressively higher credit score.
The best way to increase your credit score is first to make sure any errors on your credit reports are fixed. Also, credit card companies don’t like it if you pay off your balance in full every month. That means they don’t make any money in interest from you.
Then get two or three credit cards, buy a few things on each, make all the monthly payments on time, and don’t apply for any more credit. Did you know the number of times you apply for credit affects your credit score? If you apply too many times your score goes down.
More Tips for Preparing for Buying A Home
Apart from improving your credit score, there are several other things you can do to help you be better prepared for buying a home. Below we look at a few:
- Begin saving for the down payment: For a lender to give you a mortgage you will need to show your commitment by making a down payment upfront. This means that you should have a good amount of cash stashed away somewhere. Most buyers calculate the amount they need to have saved as 10-20 percent of the total value of the home. As you are saving, remember that the more you have saved, the more likely it will be to get a mortgage.
- Get a mortgage pre-approval: Before getting into the market to buy a house, it is a better idea to know how much you can afford for a home. You do this by getting pre-approved for a mortgage. Having a pre-approval letter is also great for earning the trust of sellers. To get pre-approved, gather all your financial documents and have them submitted to a lender. They’ll send you a pre-approval letter after reviewing your assets.
It’s also easier to get a good mortgage if you are not self-employed, but have been employed by a large, stable company for several years. And don’t be afraid to shop around for a mortgage. There are many mortgage brokers. Some may be more willing to deal with you than others for their reasons.
- Minimize money movements: When buying a house your lender will want to carefully scrutinize your credit history and accounts. You should therefore avoid any huge purchases when waiting to get approved for the loan. The idea is to keep your accounts steady until you’ve signed the papers and paid off the house. After you’ve bought the house you can increase your debt if necessary, but don’t go too far into debt. It can be a tremendous burden year down the road.
- Get yourself a good real estate agent: Before you start looking at homes and get sidetracked, make sure to select a good realtor. A good agent will understand the market and know the neighborhood. They will have been very successful in that market for many years, and have many testimonials and positive reviews from happy clients. They are therefore your best bet at getting all the paperwork done correctly and also landing the best deals. They will also provide great recommendations for home repair and maintenance professionals.
- Explore the neighborhood: Spend some time in a neighborhood before you begin house hunting. Talk to the people, visit local shops, and get acquainted with the area before buying a home there. This will save you from possible regrets down the road.